Problem 22-2

Making a flexible operating budget (L.O. 5)

The computation of operating income for Frisco Company for 2018 follows:

Sales $1,800,000

Cost of goods manufactured and sold:

Direct materials $360,000

Direct labor 240,000

Variable manufacturing

overhead 120,000

Fixed manufacturing

overhead 240,000 960,000

Gross margin $840,000

Selling expenses:

Variable $132,000

Fixed 168,000 300,000

$540,000

Administrative expenses:

Variable $156,000

Fixed 192,000 348,000

Net operating income $192,000

An operating budget is prepared for 2019 with sales forecasted at a 25% increase in volume. Direct materials, direct labor, and all costs labeled as variable are completely variable. Fixed costs are expected to continue except for a $24,000 increase in fixed administrative costs. Actual operating data for 2019 are:

Sales $2,160,000

Direct

materials 444,000

Direct labor 288,000

Variable manufacturing

overhead 148,800

Fixed manufacturing

overhead 246,000

Variable selling

expenses 186,000

Fixed selling

expenses 157,200

Variable administrative

expenses 198,000

Fixed administrative

expenses 218,200

a.

I need help making a budget report comparing the 2019 planned operating budget with actual 2019data.

b. I need help making a budget report that would be useful in appraising the performance of the various persons charged with responsibility to provide satisfactory income. (There was a hint: I need help making a budget data on a flexible basis and use the percentage by which sales were actually experienced.)

c. Comment on the differences revealed by the two reports.